Mexican Peso: Banxico cautious on cuts as Peso risks linger – Commerzbank

Commerzbank’s Norman Liebke notes Banxico’s September minutes signal a board leaning toward further easing, though the policy rate stayed at 6.5%. He argues it is too early to see a clear November cut, given US elections, geopolitical risks and energy prices. Additional cuts would narrow the US-Mexico rate differential and risk renewed Peso depreciation, with USD/MXN already up about 7% since mid-September.

Banxico signals but waits

"Once again, attention turns to Mexican monetary policy. The minutes of Banxico’s September meeting, published yesterday, contained several indications that the governing board is considering further rate cuts. In the immediate aftermath of the release, the Mexican peso weakened by around 1% against the US dollar at one point."

"While Banxico’s five-member board unanimously left the policy rate unchanged at 6.5% on 24 September, the minutes suggest that a majority of policymakers see scope for additional easing under the right conditions. At first glance, the discussion within the board points to a greater willingness to continue the easing cycle. In our view, however, it is still too early to interpret this as a clear signal of a rate cut in November."

"Given the upcoming US midterm elections, persistent geopolitical uncertainty, and the risk of elevated energy prices reigniting inflation through indirect and second-round effects, Banxico is more likely to remain in a wait-and-see mode for the time being."

"Moreover, additional rate cuts would further narrow the interest rate differential with the United States and could expose the peso to renewed depreciation pressures. This consideration has become even more relevant given that the US dollar has already appreciated by almost 7% against the peso since the Federal Reserve's rate hike on 16 September."

"A further weakening of the peso would raise import costs and could intensify inflationary pressures through a stronger exchange-rate pass-through."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)